In a major overhaul of tax administration, Prime Minister Narendra Modi launched a platform for ‘Transparent Taxation - Honouring the Honest’.

He unveiled faceless tax assessment, faceless appeal and a taxpayers’ charter. It aims to meet the requirements of the 21st century taxation system.

PM highlighted that the taxpayer base at just 1.5 crore in India is very low.

The Central Board of Direct Taxes (CBDT), which is the apex decision making body in direct tax matters, administers personal income tax and corporate tax.

What are the new reforms?

The taxpayers’ charter and faceless assessment are the next phase of direct tax reforms aimed at easing compliance and rewarding honest taxpayers.

Faceless assessment and appeals

With faceless assessment, the taxpayer does not require the taxpayer to visit any office or meet any official.

Till now, the tax office in the city of residence was handling the scrutiny, appeal, and notices of an individual taxpayer. Now, a central computer will pick up tax returns for scrutiny based on risk parameters and mismatches and then will allot them randomly to a team of officers in any city. The scrutiny by these officers will be reviewed by officers at another randomly selected location.

Notices, if any, will be sent only by centralised computer system, and taxpayer can respond to them electronically without the requirement of visiting a tax office or meeting any official.

The facility of faceless appeal will be available across the country from  September 25. 

The new platform apart from being faceless is also aimed at boosting the confidence of the taxpayer and making him/her fearless. It also reduces the scope for corruption and overreach by officials. 

The cases of scrutiny have reduced by at least four times in the last six years from 0.94 per cent in 2012-13 to 0.26 per cent in 2018-19.

Taxpayers’ charter

In the Budget for 2020-21 fiscal, Finance Minister Nirmala Sitharaman had announced a ‘taxpayer charter’, which is expected to have statutory status and will empower citizens by ensuring time-bound services by the Income Tax department.

The charter will ensure trust between a taxpayer and the administration and reduce harassment, as well as increase efficiency of the department, Sitharman had said in her Budget speech.

The tax officers will now be committed to a 14-point charter, which includes collecting “only the tax amount due” as per the law, while taxpayers would have to be responsible and fulfill six-point expectations of the I-T Department, including being honest and compliant.

Major tax reforms at a glance

The government’s reforms in the last six years have focused on banking the unbanked, securing the unsecured, and funding the unfunded.

* Reduction in corporate tax rate for all existing domestic companies:  In order to promote growth and investment, the government has brought in a tax reform through the Taxation Laws (Amendment) Ordinance 2019 which provided a concessional tax regime of 22 per cent for all existing domestic companies from FY 2019-20 if they do not avail any specified exemption or incentive. Further, such companies have also been exempted from payment of Minimum Alternate Tax (MAT).

* Incentive for new manufacturing domestic companies: In order to attract investment in the manufacturing sector, the Taxation Laws (Amendment) Ordinance 2019 has reduced the tax rate to 15 per cent for new manufacturing domestic company, if such company does not avail any specified exemption or incentive. These companies have also been exempted from payment of Minimum Alternate Tax.

* Reduction in MAT rate: In order to provide relief to the companies which continue to avail exemption/deduction and pay tax under MAT, the rate of MAT has also been reduced to 15 per cent.

* Exemption from income tax to individuals earning income up to Rs 5 lakh and increase in standard deduction: The Finance Act, 2019 exempted an individual taxpayer with taxable income up to Rs 5 lakh by providing 100 per cent tax rebate. Also, to provide relief to the salaried taxpayers, the Finance Act, 2019 enhanced the standard deduction from Rs 40,000 to Rs 50,000.

* Personal Income Tax: The Finance Act, 2020 has provided an option to individuals and co-operatives for paying income tax at concessional rates if they do not avail specified exemption and incentive.

* Abolition of Dividend Distribution Tax: To increase the attractiveness of the Indian equity market and to provide relief to a large class of investors in whose case dividend income is taxable at the rate lower than the rate of Dividend Distribution Tax, the Finance Act, 2020 removed the Dividend Distribution Tax under which the companies are not required to pay it. The dividend income shall be taxed only in the hands of the recipients at their applicable rate.

* Vivad Se Vishwas: A large number of disputes related to direct taxes are pending at various levels of adjudication from Commissioner (Appeals) level to Supreme Court. These tax disputes consume a large part of resources both on the part of the government as well as taxpayers and also deprive timely collection of revenue. With these facts in mind, an urgent need was felt to provide for resolution of pending tax disputes which will not only benefit the government by generating timely revenue but also the taxpayers as it will bring down mounting litigation costs and efforts can be better utilised for expanding business activities. Direct Tax Vivad se Vishwas Act, 2020 was enacted on March 17, 2020 under which the declarations for settling disputes are filed.

* Document Identification Number (DIN): In order to bring efficiency and transparency in the functioning of the Income Tax Department, every communication of the department whether it is related to assessment, appeals, investigation, penalty and rectification, among other things, issued from October 1, 2019 onwards are mandatorily having a computer-generated unique document identification number (DIN).

* Simplification of compliance norms for startups: Startups have been provided hassle-free tax environment which includes simplification of assessment procedure, exemptions from angel tax, constitution of dedicated startup cell, etc.

* Pre-filling of Income Tax Returns: To make tax compliance more convenient, pre-filled Income Tax Returns (ITR) have been provided to individual taxpayers. The ITR form now contains pre-filled details of certain incomes such as salary income. The scope of information for pre-filling is being continuously expanded by pre-filling more transactions in the ITR.

* Raising of monetary limit for filing of appeal: To effectively reduce taxpayer grievances/litigation and help the Income Tax Department focus on litigation involving complex legal issues and high tax effect, the monetary thresholds for filing of departmental appeals have been raised from Rs 20 lakh to Rs 50 lakh for appeal before Income Tax Appellate Tribunal, from Rs 50 lakh to Rs 1 crore for appeal before the High Court and from Rs 1 crore to Rs 2 crore for appeal before the Supreme Court.